A radical idea for a central bank: get more monetary experts


If ever there was a time when the best and the brightest could do politics, the ongoing epic fight against inflation could be a good one. Yet Australia’s central bank is shackled to an anachronistic staff selection that left it hostage at a time when little scrutiny was expected – or demanded. Some changes are almost certainly coming, but don’t look for an overnight revolution.

Protected by decades of pre-pandemic growth, this is an uncomfortable time for the Reserve Bank of Australia. Consumer price rises are the fastest in more than a generation and authorities have triggered a series of sharp interest rate hikes in a bid to contain them. This alone has drawn scathing criticism of the bank’s operation. Today, an external panel tasked with examining just about every aspect of the bank’s structure, culture, and operations gets to work. The RBA board will not be spared scrutiny, according to a background paper released on Thursday. Well Named. Australia has lagged behind the world for a while.

The three people chairing the RBA’s performance review questioned whether there were enough monetary experts on the nine-person board and too many types of companies. The question of whether the votes of the RBA directors should be published or whether dissents should be disclosed without names is also under consideration. That these are even problems in 2022 is an indictment not just of the bank, but of successive governments – regardless of party – that have protected the RBA. (Appointments are made by the Treasurer.)

Not that the officials accredited in currency are beyond reproach. Inflation is far too high for comfort around the world, including in places like the US and UK that combine their rate-setting panels with economists and academics, as well as former bankers and administrative officials. They also make mistakes and can also fall prey to groupthink, with disastrous consequences. But there is a published voting record. People can count on being asked in interviews and after speeches if they hiked, argued for a cut or favored a break. Even relatively junior members of the Federal Open Market Committee know it comes with the territory. Some seem to need attention – members of the Fed Board of Governors have no other job. Same thing with the Bank of England’s Monetary Policy Committee. The Governing Council of the European Central Bank is made up of national central bankers and an executive board.

In Australia, the full-time members of the central bank’s board are Governor Philip Lowe and Deputy Governor Michelle Bullock, who has held the position for five months. The board has hosted mining executives, retail bosses and university directors. There is usually a professional economist in the mix. They may retain outside directorships, including in publicly traded companies.

The governments claim that the composition aims to reflect a broad mix of cultural and economic life. It’s a noble ambition, in theory. In practice, this can often mean that they do not have the expertise, staff or resources to challenge the internal opinion of senior RBA management. (The role of the senior treasury official, who sits on the board, is also worth considering. Does this add or diminish perceptions of independence? Of course, have them in the room, but perhaps as an observer.)

Corporate life Down Under is often criticized as a cozy old boys club. While five of the nine members of the RBA board are women, the panel is also tasked with looking at culture and recruitment as well as communications and the 2%-3% inflation target. Bullock’s nomination – which makes her a candidate to succeed Lowe when her term ends in a year – was welcome and too long in coming. Janet Yellen became Fed vice-chairman in 2010 and chairwoman in 2014; Alice Rivlin was vice-president from 1996 to 1999. Christine Lagarde directs the ECB. Women have run Malaysia’s central bank for most of this century.

Such openness would inevitably invite further improvements in RBA communications. One obvious shortcoming is the lack of a press conference after every rate decision, a common practice in both developed and emerging economies. The RBA has made progress: Lowe often schedules a major speech in the days following the monetary policy announcement. And a lot of talk isn’t necessarily a panacea. The position of the Fed and the ECB can sometimes be clouded by the number of their collaborators in front of the microphones. Not all of them reflect the point of view of the management of their institution.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was Bloomberg News’ economics editor.

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